VANDALIZED OFFICE: Angry homebuyers raided the management offices at some of Vanke's apartment complexes in Hangzhou on September 4

Few Chinese companies have been more courageous in facing the faltering domestic property market than China Vanke Co. Ltd., the country's biggest listed property developer. The Shenzhen-based company has offered discounts to many apartment buyers since the end of last year, despite the risk of those who bought homes earlier without discount offers demanding their money back.

Irate home buyers have been raiding the management offices of Vanke's residential apartment complexes in Hangzhou, Shanghai and Nanjing, where they saw the value of their yet-to-be-completed houses melt due to price discounts up to 25 percent since late August.

"While Vanke understands buyers' feelings, it is not possible to accept demands for compensation or refunds that are not based on law or contracts," the company said in a statement on September 8 in response to the mini-riot in Hangzhou.

Vanke's "Sweet Home for Young Couples" discount had been widely popular. The promotion, which covered four residential projects in Hangzhou, began on September 3 and ended eight days ahead of schedule on September 6.

"Vanke almost sold out all the homes that it was ready to sell in such a short time," wrote Pan Shiyi, Chairman of Soho China Ltd., another big-name developer, in his personal blog on sina.com on September 15. "By doing this, Vanke achieved a decisive victory in the Yangtze River Delta market, including Hangzhou."

Some developers may become financially stronger while others wane during the cyclical fluctuations of the real estate industry. The difference between them, Pan said, is "whether a company has a vision of the future market, and whether it gets prepared for it and pushes through with that vision."

Discount or not

Vanke's problems in Hangzhou are typical of the dilemma facing many Chinese property developers. On the one hand, they have had to cut prices in order to attract buyers and boost sales, and on the other, they have been afraid that discounts could irritate early buyers who may demand compensation.

There are clear signs of a significant slowdown in the overheated property market, which have resulted from the measures put in place by government authorities. These measures include requiring a 30-percent upfront payment for a second home mortgage to discourage property speculation and limiting loans to a category of land development to squeeze out small, poorly financed developers. As a result of this policy, the area of property sold, which increased by 25.7 percent last year, dropped 10.8 percent in the first seven months from 2007, according to statistics by the National Development and Reform Commission.

Vanke's floor space of property sold shrank by 32.8 percent, while its sales volume dropped 35.2 percent in August, although both increased by 15 percent and 38.1 percent, respectively, in the first half of this year.

"We offered discounts because property prices had escalated too irrationally to match the demands in the last two years," Vanke's Vice Executive President Xiao Li told The Economic Observer newspaper. "The increase in sales after we slashed prices proved there is still a huge inelastic demand for houses."